Small pharmacies are most likely to incur hefty tax fines as they struggle to keep on top of red tape, experts have warned.

Pharmacy accountant Umesh Modi, partner at accountancy firm Silver Levene, said he had seen an increase in enquiries about tax returns as smaller businesses felt unable to keep up with red tape. Numark backed the comments, stressing that many members were only able to tackle bureaucracy in their free time.

The comments came after the Forum of Private Business revealed that one firm faced a fine of up to £10,000 for changing from a partnership to a limited company without informing HMRC. It said the company had retained the same VAT number and had paid the correct amount of tax.

"Often mistakes aren't deliberate, so they shouldn't be applying the penalties so strictly" Umesh Modi, Silver Levene

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Mr Modi said the incident was an example of HMRC "using a sledgehammer to crack a walnut". He revealed that penalties were becoming an increasing problem for some of his pharmacy clients. "We do have clients that have had problems with HMRC," he told C+D. "What we're finding is that smaller businesses are never going to be 100 per cent correct [in their tax documentation] without help, as they're not experts and the legislation is so complex."

Mr Modi added that new penalties introduced in the past three years had worsened the situation. In 2009, the customs and tax department introduced a penalty for inaccurate tax documents and returns. A year later it implemented a specific fine for failing to tell HMRC about a tax obligation at the correct time. Penalties for non-deliberate mistakes can be up to 30 per cent of any extra tax due, but HMRC did stress that it would accept "any reasonable excuse" for inaccuracies.

However, Mr Modi argued that, in some cases, the approach to penalties was too strict. "Since the new legislation was introduced, HMRC has tended to stick with the guideline penalties," he explained. "But often mistakes aren't deliberate, so they shouldn't be applying the penalties so strictly. It should be proportionate – if HMRC hasn't lost any tax, then why impose a large penalty?"

And Numark company secretary Stephen Marks said that many small pharmacies were feeling the strain of paperwork requirements already. "Schools of pharmacy don't teach people how to run a business and it can be a very steep learning curve getting to grips with obligations to HMRC and others," he told C+D. "Numark members often spend lunch hours, evenings, weekends and holidays undertaking the business aspects of running a pharmacy."

Responding to the comments, HMRC said it recognised that "many small businesses" worried about completing their tax documentation correctly. It told C+D it did not have any data on whether small businesses faced a disproportionate amount of fines, but highlighted that it had a "wide array of help" on its website, including interactive tutorials, e-learning packages and webinars.